The Pebble in the Shoe: Making the Case for the Government

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The Pebble in the Shoe: Making the Case for theGovernment EmployeeJoan R. BullockFlorida A&M University College of Law, [email protected]

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Recommended CitationJoan R. Bullock, The Pebble in the Shoe: Making the Case for the Government Employee, 60 Tenn. L. Rev. 365 (1993)

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The Pebble in the Shoe: Making the Case for theGovernment Employee

JOAN R. BULLOCK*

I. INTRODUCTION

In March of 1990, an eagle-eyed auditor by the name of PaulBiddle upset the status quo at Stanford University. As the on-campusrepresentative of the federal government's Office of Naval Research,he uncovered and reported to his superiors several instances ofimproper charges by Stanford.1 Since his discovery, Stanford Uni-versity has become the subject of a criminal investigation for com-mitting fraud against the United States, 2 the president of the universityhas resigned,3 the university has returned approximately two milliondollars to the federal coffers, 4 and the university entered its 1991fiscal year with approximately $20 million less as a result of theDefense Contract Audit Agency's reduction of its overhead rate from74 to 55.5 percent.5 To add insult to injury, Paul Biddle broughtsuit against Stanford University seeking to use the information heacquired in his position as contract administrator for the Office of

* Assistant Professor of Law, University of Toledo College of Law. J.D.1983, University of Toledo College of Law; M.B.A. 1988, University of Michigan;B.A. 1980, Michigan State University. The author would like to thank ProfessorsSusan Martyn, Henry Bourguignon, and Donald Lively for their insightful commentson earlier drafts. Research for this article was supported by a University of ToledoCollege of Law Summer Research Grant.

1. Dennis Kelly, The Accountant Who Opened the Books on Stanford, USATODAY, Aug. 6, 1991, at 6D.

2. Financial Responsibility at Universities, Part 2 - Indirect Cost RecoveryPractices at U.S. Universities for Federal Research Grants and Contracts: HearingsBefore the Subcomm. on Oversight and Investigations of the House Comm. onEnergy and Commerce, 102nd Cong., 1st Sess. 118 at 105 (1991), microformed onCIS No. 91-H369-91 (Congressional Info. Service) [hereinafter Financial Responsi-bility at Universities, Part 2].

3. Michael McCabe, The Kennedy Years at Stanford, S. F. CHRON., Mar.19, 1992, at A15. On July 29, 1991, President Donald Kennedy resigned effectiveAugust 31, 1992. Id.

4. Financial Responsibility at Universities, Part 2, supra note 2, at 23-24.5. See Financial Responsibility at Universities, Part 2, supra note 2, at 54,

62.

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Naval Research as the basis for maintaining a qui tam6 action underthe False Claims Act (Act). 7 If he is successful, he stands to reap aprofit numbering in the tens of millions of dollars." Needless to say,Stanford is not amused. Moreover, the government, represented bythe United States Department of Justice, has sided with StanfordUniversity in contending that Biddle does not have standing to sueunder the Act because he acquired the information that forms thebasis of his cause of action during the course of his employment. 9

Biddle, who describes himself as contentious and a very principledperson, 0 considers himself a pebble in the shoe1' and stated that,"We [the government] need more starch in the shorts; we need morepebbles in shoes like Paul Biddle. If we get more of these, then therewill be change."12

This Article addresses the issue of whether federal governmentemployees should be able to use the False Claims Act, also knownas the "federal whistleblower statute," to personally benefit fromuncovering fraud against the government during the course of theiremployment. The Article addresses, therefore, the apparent collisionbetween two policies: on the one hand, the federal government hasa compelling interest in vigorously pursuing those contractors whodefraud it; on the other hand, the government has an interest in notencouraging its own investigators to enrich themselves by bringingpersonal suits for damages against the target of their investigations.

The False Claims Act was signed into law in 1863' 3 by PresidentAbraham Lincoln as a response to cases of contractor fraud perpe-trated on the Union Army during the Civil War.' 4 This Act hasbecome the federal government's primary tool for combatting fraudperpetrated against it.' 5 The current Act permits the United States to

6. "Qui tam" is an abbreviation for the Latin phrase, "qui tam pro dominorege quam pro si ipso in hac parte sequitur," which translates as he "[wiho sueson behalf of the King as well as for himself." BLACK'S LAW DICTIONARY 1251 (6thed. 1991). By statute, a qui tam action permits an individual to become a "privateattorney general" with a right to share in the recovery with the Government. See31 U.S.C. § 3730(b) (1988).

7. 31 U.S.C. §§ 3729-33 (1988).8. See Howard Mintz, Feds Lobby for Limits on Whistleblower Statute,

THE RECORDER, Jan. 10, 1992, at 1.9. See id.

10. Kenneth Cooper, Navy to Honor Biddle's Campus Crusade; CivilianAccountant Unearthed Research Billing Excesses at Stanford, WASH. POST, Sept.30, 1991, at A9.

11. Richard C. Paddock, Whistle-Blower Still Shaking Up Stanford, L.A.TIMES, Feb. 14, 1992, at A3.

12. Kelly, supra note 1, at 6D.13. Act of Mar. 2, 1863, ch. 67, sec. 3, 12 Stat. 698.14. S. REP. No. 345, 99th Cong., 2d Sess. 4 (1986), reprinted in 1986

U.S.C.C.A.N. 5266, 5269.15. See generally, Richard J. Oparil, The Coming Impact of the Amended

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recover treble damages plus an amount ranging from $5,000 to$10,000 for each fraudulent or false claim.' 6 Although the governmenthas always been able to pursue common law contract remedies, thegovernment has not been very successful in detecting fraud.' 7 Con-sequently, the False Claims Act gives an incentive to private indivi-duals who have either a direct or independent knowledge of fraudbeing committed by contractors against the government to comeforward or "blow the whistle." These whistleblowers or "relators"can bring a qui tam action and are able to recover at least fifteenpercent but not more than thirty percent of the proceeds recoveredby the government. 8

Paul Biddle's case graphically raises the issue of whether govern-ment employees should have standing as relators and be allowed toinitiate a qui tam action when they uncover fraud against the gov-ernment as part of their job responsibilities. Prior to its amendmentin 1986, the False Claims Act prohibited both current and formergovernment employees from initiating qui tam actions based oninformation acquired while a government employee. 19 Section3730(b)(4) of the former Act provided that courts had no jurisdictionover qui tam actions "based on evidence or information the govern-ment had when the action was brought. ' 20 This effectively precludedgovernment employees from bringing the action since the government

False Claims Act, 22 AKRON L. REV. 525 (1989); Alexander M. Waldrop, Note,The False Claims Act and the Proposed Fraud Civil Remedies Act: ComplementaryPartners in the Prevention of Federal Program Fraud, 73 Ky. L.J. 967 (1984)(discussing the False Claims Act).

16. 31 U.S.C. § 3729(a) (1988).17. S. REP. No. 345, supra note 14, at 3, reprinted in 1986 U.S.C.C.A.N.

at 5268 (citing GAO Report to Congress, Fraud in Government Programs: HowExtensive is it? How Can it be Controlled? (1981)). The Senate stated that "mostfraud goes undetected due to the failure of Governmental agencies to effectivelyensure accountability on the part of program recipients and Government contrac-tors." Id.

18. 31 U.S.C. § 3730(d).19. See United States ex rel. McCans v. Armour & Co., 146 F. Supp. 546

(D.C. Cir. 1956) (per curiam), aff'd, 254 F.2d 90, cert. denied, 358 U.S. 834 (1958).20. 31 U.S.C. § 3730(b)(4) (1982). The Act provided, in pertinent part:

Unless the government proceeds with the action, the court shall dismiss anaction brought by the person on discovering the action is based on evidenceor information the government had when the action was brought.

Id. The prior version of this particular section stated that:[t]he court shall have no jurisdiction to proceed with any such suit broughtunder clause (B) of this section or pending suit brought under this sectionwhenever it shall be made to appear that such suit was based upon evidenceor information in the possession of the United States, or any agency,officer or employee thereof, at the time such suit was brought.

31 U.S.C. § 232(C) (1976). Sections 231-35 were recodified in 1982 and reenactedwithout substantial changes in 31 U.S.C. §§ 3729-3731. See H.R. REP. No. 651,97th Cong., 2d Sess. 3 (1982), reprinted in 1982 U.S.C.C.A.N. 1895-96.

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had the information by virtue of the government employee uncoveringthe fraud. The 1986 amendment deleted this clause leading somecourts to hold that government employees are no longer precludedfrom maintaining a qui tam action. 2' These courts reached thisconclusion as a result of the statute's omission rather than anaffirmative statement of change in the statute. Under these circum-stances, the courts' conclusion that government employees were notbarred from instituting and maintaining qui tam actions was predi-cated on the underlying assumption that the omission of any referenceto government employees as an excluded group was a deliberate one.

Nevertheless, the Department of Justice has refused to make thisassumption. Instead, it came to the opposite conclusion, namely, thatthe absence of any reference to government employees as an excludedgroup was unintentional on the part of the statute draftsmen.22 Asa consequence of being at odds with the courts, the Department ofJustice is currently urging Congress to amend the statute to specifi-cally exclude government employees from benefitting under the stat-ute.2

3

This present controversy, therefore, is one of casus omissus. 24 Inparticular, the question is whether such omission should be viewedas intentional, thus allowing government employees to maintain theaction or whether such omission should be disposed of according tothe law as it existed prior to the Act's amendment.

II. BACKGROUND To THE PRESENT CONTROVERSY

A. The False Claims Act

In 1863, President Abraham Lincoln signed into law the FalseClaims Act, 2 then also known as the "Lincoln Law," to encouragethe private citizenry to assist in ferreting out unscrupulous defensecontractors who committed fraud against the Union army by deliv-

21. See United States ex rel. Hagood v. Sonoma County Water Agency, 929F.2d 1416, 1420 (9th Cir. 1991); United States ex rel. Givler v. Smith, 760 F. Supp.72, 74 (E.D. Pa. 1991); United States ex rel. McDowell v. McDonnell DouglasCorp., 755 F. Supp. 1038, 1039-40 (M.D. Ga. 1991); United States v. CAC-Ramsay,Inc., 744 F. Supp. 1158 (S.D. Fla. 1990). But see United States ex reL LeBlanc v.Raytheon Co., 913 F.2d 17, 20 (1st Cir. 1990) (finding that although there was noabsolute bar to government employees bringing qui tam actions, a governmentemployee whose job involved detecting fraud could not use this work product toinitiate such an action).

22. Mintz, supra note 8, at 1. In November of 1991, Assistant AttorneyGeneral W. Lee Rawls wrote Congress, "We do not believe that in liberalizingprivate qui tam suits in 1986, Congress intended to give government employees thistype of windfall for performing their government jobs." Id.

23. See H.R. 4563, 102nd Cong., 2d Sess. (1992); S. 2785, 102nd Cong., 2dSess. (1992). The House and Senate are currently considering revisions to the FalseClaims Act that would address the rights of the government employee. See id.

24. Casus omissus is defined as "[a] case omitted; an event or contingencyfor which no provision is made." BLACK's LAW DICTIONARY 219 (6th ed. 1991).

25. Act of Mar. 2, 1863, ch. 67, sec. 3, 12 Stat. 698.

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ering bullets loaded with sawdust. 26 The original Act assessed bothcivil and criminal penalties against a person who was found toknowingly have submitted a false claim to the government. 27 Thecivil penalty required the person committing the fraud to pay doublethe amount of damages suffered by the United States as a conse-quence of the false claim and an additional $2,000 forfeiture foreach false claim submitted. 28 The criminal penalty provided that theperson could be fined not less than $1,000 nor more than $5,000 orimprisoned for not less than one nor more than five years. 29 Theprivate relator or whistleblower who initiated the qui tam action wasentitled to fifty percent of the damages and forfeitures recovered andcollected by the government plus an award for litigation costs, ifsuccessful. Once the action was underway, no one, not even thegovernment, could join in or take over the case.3 0 In fact, the legalsystem considered the relator's interest a property right which couldnot be divested by the United States."

In 1943, the Act was amended to reduce the involvement of theprivate citizenry. This amendment, made at the behest of the De-partment of Justice, was in response to a wave of parasitic suitsbeginning in the 1930s and culminating in 1943 with the United States

26. See CONG. GLOBE, 37th Cong., 3rd Sess., 952, 955 (1863).27. See REv. STAT. § 3490 (1874); REV. STAT. § 5438 (1874).28. REV. STAT. § 3490 (1874). Section 3490 provided in pertinent part:

Any person . . . who shall do or commit any of the acts prohibited by anyof the provisions of section fifty-four hundred and thirty-eight, Title"C~ s, " shall forfeit and pay to the United States the sum of twothousand dollars, and, in addition, double the amount of damages whichthe United States may have sustained. ...

Id.29. REV. STAT. § 5438 (1874). Section 5438 provided in pertinent part:

Every person who makes or causes to be made, or presents or causes tobe presented, for payment or approval, to or by any person or officer inthe civil, military, or naval service of the United States . . . knowing suchclaim to be false . .. or who . . . causes to be made ... any false bill. . . or who enters into agreement . . . to defraud the Government . . . orwho, having charge ... of any money ... conceal[s] such money ...shall be imprisoned at hard labor for not less than one nor more than fiveyears, or fined not less than one thousand dollars nor more than fivethousand dollars.

Id. The current criminal False Claims Act provides that:[wlhoever makes or presents to any person or officer in the civil, militaryor naval service of the United States, or to any department or agencythereof, any claim upon or against the United States, or any departmentor agency thereof, knowing such claim to be false, fictitious, or fraudulent,shall be fined not more than $10,000 or imprisoned not more than fiveyears, or both.

18 U.S.C. § 287 (1982). This Article addresses only the civil statute.30. See United States ex rel. Stillwell v. Hughes Helicopter, Inc., 714 F.

Supp. 1084 (C.D. Cal. 1989).31. United States v. Griswold, 30 F. 762, 763 (C.C.D.Or. 1887).

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370 TENNESSEE LA W REVIEW [Vol. 60

Supreme Court decision of United States ex rel. Marcus v. Hess.3 2

In these parasitic suits, the relators brought qui tam actions basedupon information copied from government files and indictments. 33

In Marcus v. Hess, the United States contended that a relator whobased his qui tam action on information in a government indictmentshould be precluded from recovering under the False Claims Actbecause he did not contribute anything to the discovery of the allegedfraud. In holding for the relator, Justice Black, speaking for themajority of the Court, stated that neither the language of the statutenor its history could support the government's contention that theapplication of the statute was limited to those who provided newinformation of fraud. There was "no reason why Congress couldnot, if it had chosen to do so, have provided specifically for theamount of new information which the informer must produce to beentitled to reward." 3 4 In response to the government's contentionthat conditions had changed since the Act was passed in 1863, 35

Justice Black retorted that, although conditions may have changed,the statute had not been altered, and consequently, the governmentselected the wrong forum in which to air its grievances.3 6

In response to the Marcus v. Hess decision, then Attorney GeneralFrancis Biddle urged Congress to repeal the qui tam provisions ofthe Act.3 7 In a letter to Senator Frederick Van Nuys, Chairman ofthe Senate Judiciary Committee,38 the Attorney General wrote:

The result of [the Hess] decision is that whenever a grand juryreturns an indictment charging fraud against the Government theremay be a scramble among would-be informers to see who can bethe first to file civil suit based on charges in the indictment. Thereare now pending 19 such suits. In 18 of these suits the basicallegations of the informers' pleadings were copied from the in-

32. 317 U.S. 537 (1943). "[In September] 1943, there were approximatelytwenty-five informer suits pending, constituting a total demand of almost$150,000,000-a potential recovery of $75,000,000 to the informers. According tothe Attorney General, almost all of these suits were of the 'parasitic' type." (Footnoteomitted). United States ex rel. Weiss v. Schwartz, 546 F. Supp. 422, 425 (N.D. Cal.1982).

33. See 89 CONG. REc. 10,846 (1943).34. 317 U.S. at 546, n.9.35. See id. at 547. In his dissent, Justice Jackson stated that:

the Senator [urging enactment of the statute] was then speaking of law -°

enforcement in a nation which had not yet established a Federal Departmentof Justice, which did not then have a Federal Bureau of Investigation, ora Treasury investigating force, and in which the activities of the FederalGovernment were so circumscribed that they had not been found necessary.

Id. at 560.36. Id. at 547.37. See Letter from Attorney General Biddle to Senator Van Nuys (Mar. 22,

1943), reprinted in 89 CONG. REc. 7,571 (1943) (citations omitted).38. Id.

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dictments.To offset this condition the Department of Justice has under-

taken to file civil actions at the same time that indictments arereturned. But this has been found impractical. The exact time anindictment will be returned can rarely be anticipated. Moreover,this make-shift practice does not give adequate time in which toprepare proper pleadings.

I believe that Congress should by legislation put a stop to thisunseemly and undignified scramble. The Government should havesufficient time in which carefully to consider the advisability ofbringing such suits and the nature and contents of the pleading tobe filed, instead of being forced to proceed in the hasty mannerwhich alone is now available. 9

In response, the House of Representatives passed repeal legisla-tion, but the Senate amended the House bill to retain qui tam actions,but with restrictions ° Specifically, the Senate provided that thecourts' jurisdiction would be barred on qui tam suits based oninformation already in the government's possession unless the relatorwas the original source of that information. Without explanation,the resulting conference report deleted the clause regarding originalsources.41 Subsequent court decisions strictly interpreted this jurisdic-tional bar to prohibit any private suit based on information alreadyknown to the government regardless of the source. 42 The 1943 amend-ment therefore purged the courts not only of parasitic suits but alsoof suits by "honest" informers who provided new information tothe government. 4

1 For example, in United States ex rel. Wisconsin v.Dean," the United States Court of Appeals for the Seventh Circuitfound that the State of Wisconsin was not a proper qui tam relatorin a Medicaid fraud action because the government was already in

39. Id. There is evidence that the number of parasitic suits increased dra-matically after the decision of United States ex rel. Marcus v. Hess, 317 U.S. 537(1943). As Representative Clarence Hancock pointed out, "that since the decision.. .was rendered informer suits have multiplied very rapidly and are continuing tomultiply." 89 CONG. REc. 10,847 (1943).

40. See S. REP. No. 345, supra note 14, at 11, reprinted in 1986 U.S.C.C.A.N.at 5276.

41. The Conference Report stated that jurisdiction would be denied to thecourt to proceed with a qui tam action "whenever it shall be made to appear thatsuch suit was based upon evidence or information in the possession of the UnitedStates, or any agency, officer or employee thereof, at the time such suit was brought.89 CONG. REc. 10,845 (1943).

42. See e.g., United States v. Pittman, 151 F.2d 851, 853 (5th Cir. 1946).43. See Erickson v. American Institute of Biological Sciences, 716 F. Supp.

908, 916 (E.D. Va. 1989). This purging effect, plus the reduction of the relator'saward from fifty percent to ten percent if the government chose to intervene andto 25 percent if the government declined to intervene, resulted in the initation offewer qui tam actions. See id.

44. 729 F.2d 1100 (7th Cir. 1984).

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possession of the information (albeit as a result of the State's requireddisclosure under federal law regarding Medicare programs) at thetime the action was brought. 45 Despite the filing of a brief by thefederal government indicating its belief that the State of Wisconsinwas a proper relator, the Seventh Circuit noted that "[i]f the Stateof Wisconsin desires a special exemption to the False Claims Actbecause of its requirement to report Medicaid fraud to the federalgovernment, then it should ask Congress to provide the exemption."' '

In reaction to this decision, the National Association of AttorneysGeneral adopted a resolution in June of 1984 to urge Congress toamend the False Claims Act: "to prohibit sovereign states frombecoming qui tam plaintiffs because the U.S. Government was inpossession of information provided to it by the State and declinesto intercede in the State's lawsuit, unnecessarily inhibits the detectionand prosecution of fraud on the Government." 47

As a consequence of the plight of the State of Wisconsin andother "honest" informers, Congress subsequently amended the Act.The False Claims Amendments Act of 1986 was signed into law onOctober 27, 1986. The 1986 amendments liberalized the False ClaimsAct in an attempt to "enhance the Government's ability to recoverlosses sustained as a result of fraud against the Government. ' 49 TheAct now requires a defendant found liable under the Act to paytreble damages and a forfeiture of not less than $5,000 and not morethan $10,000 for each false or fraudulent claim. 0 The 1986 amend-ments also make it easier for private individuals to sue on behalf ofthe government. The 1986 amendments do not bar a relator frominitiating a suit based on information already in the possession ofthe government. Instead, the amendments bar the relator from ini-tiating a qui tam action only if it is based on information alreadydisclosed publicly in a criminal, civil, administrative, or congressionalhearing or in news media reports." Notwithstanding this bar, an

45. Id. at 1103.46. Id. at 1106.47. S. REP. No. 345, supra note 14, at 13 (quoting the National Association

of Attorneys General).48. Pub. L. No. 99-562, 100 Stat. 3153 (1986) (codified at 31 U.S.C. §§

3729-33 (1988)).49. S. REP. No. 345, supra note 14, at 1. The 1986 amendment has caused

a resurgence of private attorneys general. Although the Department of Justice hasintervened in approximately 25 percent of the qui tam actions since 1986, thegovernment has recovered $260 million in fiscal 1990, up from $83 million in fiscal1987. W. John Moore, Windfalls for Whistle-Blowers, 17 NAT'L J. 48, 48 (1992).

50. 31 U.S.C. § 3729(a) (1988). Liability is limited to not less than doubledamages and not less than a penalty of $5,000 for those defendants who madedisclosure of their wrongdoing to investigating authorities prior to the commencementof the action. Id.

51. 31 U.S.C. § 3730(e)(4)(A) (1988).

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individual who is the original source 2 of the information remains aproper relator. The relator's share of the proceeds when the govern-ment intervenes was increased under the 1986 amendments from tenpercent to not less than fifteen percent and not more than twenty-five percent.53 If the government does not intervene, the amendmentspermit the relator to recover not less than twenty-five percent andno more than thirty percent. 54 The former version of the Act gave amaximum award of only twenty-five percent in this case. Regardlessof whether the government intervenes, the successful qui tam plaintiffhas a right to reasonable attorney fees, expenses, and costs.55

B. Blowing the Whistle on Stanford University

In March of 1991, Paul Biddle, the Office of Naval Research's5 6

resident representative at Stanford University, testified before theHouse Energy and Commerce Subcommittee on Oversight and In-vestigations regarding abuses by Stanford that he discovered while aNavy auditor.5 7 He had alleged that Stanford had overcharged thefederal government in excess of $200 million for research in the1980s58 and for projects that had nothing to do with government

52. 31 U.S.C. § 3730(e)(4)(B). "[A]n individual with direct and independentknowledge of the information on which the allegations are based and [who] hasvoluntarily provided this information to the government before filing an action. . .Id.

53. 31 U.S.C. § 3730(d)(1) (1988). In certain situations where the essentialelements of the case were not provided by the relator, the relator may receive notmore than 10 percent. See also United States v. CAC-Ramsay, Inc. 744 F. Supp.1158, 1161 (S.D. Fla. 1990).

54. 31 U.S.C. § 3730(d)(2) (1988).55. 31 U.S.C. § 3730 (1988); see also 31 U.S.C. § 2412(d) (1988).56. The Office of Naval Research is one of the primary auditing arms of the

federal government regarding research projects. It currently monitors federal researchfinancing at 39 universities and colleges. Financial Responsibility at Universities -Part 2, supra note 2, at 12. One commentator reports:

The Office of Naval Research monitors federal research contracts atmany universities as a result of a [sic] historical accident. After World WarII, the Navy was the first government agency to pay for basic universityresearch, and the Navy expanded its role to monitor all governmentcontracts, in addition to Navy research, because it had the expertise to doSO.

Louis Freedberg, An Auditor in Stanford Scandal Rejects Transfer and Resigns, S.F. CHRON., Nov. 22, 1991, at A2 [hereinafter Freedberg].

57. Financial Responsibility at Universities-Indirect Cost Recovery Practicesat U.S. Universities for Federal Research Grants and Contracts: Hearings Beforethe Subcomm. on Oversight and Investigations of the House Comm. on Energy andCommerce, 102nd Cong., 1st Sess. 33, at 100 (1991) [hereinafter Financial Respon-sibility at Universities].

58. U.S. Investigates Stanford on New Overbilling Charges, L.A. TwEs, Nov.16, 1991, at A17.

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sponsored research. For example, the General Accounting Officeconfirmed several instances of improper charges at Stanford, includ-ing an orientation for freshman students that included a trip to thebeach, $185,000 for operation of a shopping center on Stanfordproperty,5 9 $184,000 for depreciation on a 72-foot Jacuzzi-equippedyacht, $4,000 for the president's wedding reception in 1987, $2,000a month in floral arrangements, $400 for flowers for the dedicationof the Stanford horse stables and ornate furnishings for the presi-dent's residence including the cost of enlarging the president's bed,$7,000 for table linens and bed sheets for the enlarged bed, $1,200for an early nineteenth century Italian fruitwood commode, $1,500each for two Voltaire chairs from Pierre Deux, $1,284 for a pair ofGeorge II lead urns, $2,500 to refurbish a grand piano, $10,000 fora set of silverware, and $3,000 for a cedar-lined closet.6 The gov-ernment also footed the bill for a reception to introduce PresidentDonald Kennedy's new wife to the campus. 6' During the Subcom-mittee on Oversight and Investigations hearing, Chairman John Din-gell, Democratic representative from Michigan, questioned the levelof involvement by the Stanford Board of Trustees in this scandal:"We would ask where they were during these events? Well, it turnsout that they were enjoying the sufferings and tribulations of aretreat at Stanford Sierra Camp at Lake Tahoe, which cost $45,250and was again subsidized by the taxpayers of the United States." ' 62

Stanford has denied any deliberate attempt to overcharge andhas repaid the United States about $2 million in improper charges. 63

Although conceding that the charges were not necessarily appropriate,Stanford continues to maintain that they were legal. Stanford wasable to bill the government for these nonresearch costs because theuniversity's accounting system did not separate allowable from un-allowable costs in determining research overhead.6 Prior to thescandal, Stanford had one of the highest reimbursement rates foroverhead costs-seventy-four percent. 65 For every $100 received from

59. See Financial Responsibility at Universities, supra note 57, at 34.60. Id. at 3-4.61. Maria Shao, The Cracks in Stanford's Ivory Tower, Bus. WK., Mar. 11,

1991, at 64.62. Financial Responsibility at Universities, supra note 57, at 4.63. U.S. Investigates Stanford on New Overbilling Charges, L.A. TIMES, Nov.

16, 1991, at A17.64. Stanford officials "described the current accounting system as a conveyor

belt that dumps expenditures-allowed or not-into overhead accounts unless em-ployees take special steps to remove them." Kenneth J. Cooper, Stanford to ChangeGrant Accounting, WASH. POST, Jul. 23, 1991, at A19.

65. Financial Responsibility at Universities, Part 2, supra note 2, at 62.Stanford, which normally conducts about $200 million worth of research annually,had its reimbursement rate cut to 55.5 percent at a cost of approximately $20 millionto the institution. See also U.S. Investigates Stanford on New Overbilling Charges,L.A. TimEs, Nov. 16, 1991 at A17.

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the government by Stanford researchers, the university got $74 morefor overhead. 66 This reimbursement rate, negotiated on a case-by-case basis between each university and the federal auditors, is set tocover costs of indirect research. Although it had not been auditiedfor ten years, 67 Stanford contended that none of the questionablecosts were hidden from the auditors, and the research money wasspent under rules that the auditors had certified as legal at the time.6In fact, Stanford claimed that it requested the Navy to conduct auditsof the university's accounting system, but the Navy never responded. 69

At the heart of the scandal are 125 memoranda of understanding 70

that Stanford negotiated with the Office of Naval Research. Thesememoranda of understanding, signed off by government auditors,none of whom were accountants prior to Biddle, 71 permitted the costrecovery of these questionable expenses. In many cases, the sign-offwas perfunctory and was seen as a paper-pushing function ratherthan a cost-containment measure. 72 Paul Biddle has estimated thatthese special accounting exemptions cost the taxpayers as much as$200 million during the 1980s. 73 The Defense Contract Audit Agency,whose audit had confirmed much of Biddle's allegations, 74 maintainedthat the memoranda of understanding evidencing these special ac-

66. Financial Responsibility at Universities, supra note 57, at 20.67. Financial Responsibility at Universities, Part 2, supra note 2, at 115.68. Tracing Research Dollars, WASH. POST, Feb. 10, 1992, at A10. "There

was nothing really hidden.... It was all disclosed and put in the files, but no onewas challenging the costs that were being charged." Freedberg, supra note 56, atA2 (quoting John Ols, who heads the GAO office investigating the scandal).

69. Id.; see also Financial Responsibility at Universities, supra note 57, at14-15.

70. Government auditors signed these memoranda approving a one-time rulechange. See generally Financial Responsibility at Universities, supra note 57, at 23-29. As a consequence of Stanford's aggressive grantsmanship, it has the highestnumber of memoranda of understanding related to research overhead for anyuniversity. Id. at 117.

71. Freedberg, supra note 56, at A2; see also Financial Responsibility atUniversities, supra note 57, at 134.

72. Freedberg, supra note 56, at A2. Biddle stated that these prior auditorswere "misdirected, mismanaged and ill prepared to handle a contract administrationrole." Id. See also, Financial Responsibility at Universities, supra note 57, at 134.

73. See Financial Responsibility at Universities, supra note 57, at 155. Ac-counting for indirect costs is governed by the Office of Management and Budget(OMB) Circular A-21, which permits colleges to be exempted from standard pro-cedures. These exemptions had to be approved by the federal agency with overallresponsibility for federal contracts at a given institution. In the case of Stanford,the Office of Naval Research was that federal agency. Financial Responsibility atUniversities, Part 2, supra note 2, at 12.

74. See Financial Responsibility at Universities, supra note 57, at 117. Theaudits of the Defense Contract Audit Agency are advisory to the Office of NavalResearch, which governs university Federal research funds. Larry Gordon, $230Million in Stanford Charges Detailed in Audit, L.A. TIMEs, Jan. 3, 1992, at A3.

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counting exemptions were invalid. 75 Conversely, Stanford contendedthat they were valid contracts that could not be unilaterally revoked.7 6

President Kennedy and Board of Trustees President James Gaitherhave intimated that Stanford would sue if the government attemptedto revise the memoranda of understanding retroactively. 77

In the middle of this melee stands Paul Biddle. A certified publicaccountant with a Masters in International Management from TheAmerican Graduate School of International Management in Glendale,Arizona, 78 he stands to personally profit by up to $30 million. InSeptember 1991, Paul Biddle filed suit against Stanford under theFalse Claims Act. Stanford has retorted that not only should Biddlenot be able to recover any monies for his trouble of uncovering thefraud as a federal employee, but also that Biddle should not be ableto continue his auditing function at Stanford now that he has filedsuit. At the prompting of Stanford officials,7 9 Representative DonEdwards of California and Senator Jeff Bingamon of New Mexico(both Stanford alumni) wrote letters to the Bush Administrationcharging that Biddle was violating conflict-of-interest laws by contin-uing to monitor the university while pursuing a potentially lucrativequi tam action against the university. 80 Biddle, who was consideringleaving his Stanford post in January of 1992 to run for politicaloffice, subsequently decided to stay and indicated that he "hadplanned to leave, but it [was] obvious that Stanford [was] just asmanipulative, devious and as hell-bent to serve its interests apart

75. Financial Responsibility at Universities, Part 2, supra note 2, at 73-86.76. See Financial Responsibility at Universities, supra note 57, at 162; Fi-

nancial Responsibility at Universities, Part 2, supra note 2, at 61. "'The heart ofStanford's dispute (with the government) is not yachts and flowers,' said Peter VanEtten, the university's chief financial officer, pointing out that Stanford had vol-untarily withdrawn those costs several months ago. 'Rather, the dispute is aboutthe fair, actual costs of supporting research and the government's contractualagreements to pay for those costs."' Louis Freedberg, Report Says Stanford Over-billed Agency Seems to Confirm Whistle-Blower's Charges, S. F. CHRON., Jan. 3,1992, at A1S.

77. Valerie Richardson, Stanford "Scandal" a 9-Digit Liability, WASH. TnMEs,Jan. 3, 1992, at A3; see also, Financial Responsibility at Universities, Part 2, note2, at 61, 86.

78. Louis Freedberg, Stanford Whistle-Blower Makes Parting Shots, S. F.CHRON., Mar. 4, 1992, at Al.

79. Larry Horton, the Stanford official who contacted Edwards and Binga-mon, stated that "[njo man or woman who is an active litigant can be consideredimpartial and make decisions that can have a material impact on a case." LouisFreedberg, Congressmen Seek Transfer of Auditor in Stanford Probe; Whistle-Blower Accused of Having Conflict, S. F. CHRON., Dec. 20, 1991, at A27 [hereinafterCong. Transfer].

80. U.S. Urged to Shift Stanford Auditor, N.Y. TIMEs, Dec. 20, 1991, atA24.

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from those of the public as it was two years ago and 12 years ago."'"However, Biddle did resign from his Navy post on February 29,1992, in order to run for the House of Representatives as a replace-ment for Republican Tom Campbell who relinquished his seat inorder to run for the United States Senate. 82

III. JUDICIAL INTERPRETATION AND LEGISLATIVE INTENT

Paul Biddle is not the first government employee who, by bringinga private enforcement action against an alleged wrongdoer, has raisedthe issue of whether government employees can be proper relators ina qui tam action where the fraud alleged was uncovered during thecourse of their employment. Since the Act's amendment in 1986, anumber of courts have dealt squarely with this issue. 83 The courtsare in agreement that the Act as presently written does not present

81. Cong. Transfer, supra note 79, at A27. Interestingly, this was not thefirst time Stanford and Biddle have had confrontations. Biddle became the Navyrepresentative to Stanford University in 1988 after being rejected by Stanford foraccounting jobs. University personnel, who had long sought Biddle's ouster fromhis position as contract negotiator for the Navy, viewed Biddle as disorganized,vulgar, and egotistical. In 1990, he was placed on probation for two months afterStanford complained to the Navy about his work. Richard C. Paddock, Whistle-blower Still Shaking Up Stanford, L.A. TnMEs, Feb. 14, 1992, at A3; Bill Workman,Stanford Watchdog to Run For Congress, S.F. CHRON., Feb. 14, 1992, at A23.

82. Workman, supra note 81, at A23. Paddock, supra note 81, at A3. As afootnote, Biddle lost in his campaign efforts receiving only 14 percent of the votesin the June primary. Final Election Returns, L.A. TIMES, June 4, 1992, at A18.

83. United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1494 (11thCir. 1991) (an attorney for the United States Air Force became aware of, bidriggingby NEC corporation seeking telecommunications contracts with the Federal Govern-ment); United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d1416, 1417 (9th Cir. 1991) (an assistant district counsel to the San Francisco Districtof the Army Corps discovered that the cost allocations in a proposed contract withthe Sonoma County Water Agency did not comply with the terms of the WaterSupply Act and resulted in the improper reduction of the Water Agency's repaymentobligations); United States ex rel. LeBlanc v. Raytheon Co., 913 F.2d 17, 18 (1stCir. 1990), cert. denied, 111 S.Ct. 1312 (1991) (a Quality Assurance Specialist forthe Defense Contract Administrative Service observed several violations by Raytheonemployees in their handling of government contracts); United States ex rel. Givierv. Smith, 760 F. Supp. 72, 73 (E.D. Pa.1991) (a commissioner on the board of ahousing authority alleged that contractors colluded to inflate bids for repairs andimprovements to a housing project and submitted the inflated bids to the housingauthority which used the bids to apply for and receive HUD funding); United Statesex rel. McDowell v. McDonnell Douglas Corp., 755 F. Supp. 1038, 1040 (M.D. Ga.1991) (an Air Force employee alleged improper billings for spare parts for the F-15fighter); United States v. CAC-Ramsay, Inc., 744 F. Supp. 1158, 1158 (S.D. Fla.1990) (an investigator in the Office of Inspector General obtained access to an auditreport indicating Medicare fraud on the part of a health maintenance organization).

60 Tenn. L. Rev. 365 (1993)


an absolute jurisdictional bar to government employees as relators. 84

Akin to Justice Black's remarks in United States ex rel. Marcus v.Hess,8 5 the courts are in unison that the proper forum for thegovernment's grievance regarding the standing of government em-ployees as relators is Congress.8 6 More importantly, the United StatesCourt of Appeals for the Eleventh Circuit in United States ex rel.Williams v. NEC Corp., correctly perceived that the government'sgrievance spoke to administrative difficulties in implementing the Actrather than substantive contentions of violations of the Act bygovernment relators.87 In presenting its grievance regarding the pro-priety of allowing former or current government employees to sueas relators under the Act, the United States set out three contentions:first, it contended that the public disclosure provision88 of the Actwas violated when individuals used information they compiled asgovernment employees in their private capacities as citizens in a quitam action. Characterizing such relators as occupying a dual status,the government claimed that as long as employees used the infor-mation in their official capacity, no public disclosure occurred.However, when employees used this information as private citizens,they expropriated the government's workproduct and therefore dis-closed it to members of the public, albeit via self-disclosure. 89 TheUnited States District Court for the District of Massachusetts foundthis argument to be persuasive in United States ex rel. LeBlanc v.Raytheon.90

Moreover, the court was persuaded by the government's secondcontention that government employees could not qualify under theoriginal-source exception under the Act 9' because they do not provide

84. However, the United States District Court for the District of Massachu-setts found the Justice Department's argument that policy reasons as well aslegislative intent precluded all government employees from suing as relators to bepersuasive. United States ex rel. LeBlanc v. Raytheon Co., 729 F. Supp. 170, 177(D. Mass. 1990), aff'd in result, 913 F.2d 17 (1990), cert. denied, 111 S. Ct. 1312(1991).

85. See supra note 34 and accompanying text.86. See, e.g. United States ex rel. Williams v. NEC Corp., 931 F.2d at 1504.87. Id.88. Section 3730(e)(4)(A) provides,

No court shall have jurisdiction over an action under this section basedupon the public disclosure of allegations or transactions in a criminal, civil,or administrative hearing, in a congressional, administrative, or GovernmentAccounting Office report, hearing, audit, or investigation, or from thenews media, unless the action is brought by the Attorney General or theperson bringing the action is an original source of the information.

31 U.S.C. § 3130(e)(4)(A) (1988).89. See, e.g., United States ex rel. Williams v. NEC Corp. 931 F.2d at 1499;

United States ex rel. LeBlanc v. Raytheon, 913 F.2d at 20.90. 729 F. Supp. 170 (D. Mass. 1992).91. Section 3730(e)(4)(B) provides,

For purposes of this paragraph, "original source" means an individual

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information voluntarily. Instead, they provide information to thegovernment as a requirement of their employment. 92

Although affirming the district court's holding in LeBlanc, theUnited States Court of Appeals for the First Circuit discredited the"dual status" theory because the theory assumed that governmentemployees "lead schizophrenic lives and can publicly disclose infor-mation to themselves. ' 93 The court went on further to say that acourt's jurisdictional power over a qui tam action is not divestedmerely because the information was made available to the public.Rather, section 3730(e)(4)(A) only prohibits courts from hearing quitam actions based on information made available to the public duringthe course of a government hearing, investigation, or audit or fromthe news media.9 Therefore, the First Circuit held that governmentemployees were allowed to initiate qui tam actions based uponinformation acquired during the course of their employment so longas it was not acquired from a government hearing, investigation, oraudit or through the news media. 9

Nevertheless, the First Circuit affirmed the district court's holdingand dismissed the qui tam action because LeBlanc did not qualifyfor the original-source exception to section 3730(e)(4)'s.jurisdictionalbar. The court agreed with the lower court's analysis that LeBlanchad an affirmative duty to provide the government with the infor-mation and, therefore, since the fruit of his efforts was the govern-ment's workproduct, he was not an entity indistinguishable from thegovernment to have independent knowledge of the information form-ing the basis of the action.96

This decision has been criticized by later courts that correctlypointed out that the original-source exception to the jurisdictionalbar need not be invoked once a court finds that the informationupon which the qui tam action was based was not publicly disclosedas delineated in section 3730(e)(4)(A). In other words, once relatorssuccessfully overcome the public disclosure jurisdictional bar, quitam plaintiffs need not prove that they were an original source ofthe information .

97

who has direct and independent knowledge of the information on whichthe allegations are based and has voluntarily provided the information tothe Government before filing an action under this section which is basedon the information.

31 U.S.C. § 3730(e)(4)(B) (1988).92. 729 F. Supp. at 176.93. 913 F.2d at 20.94. This prohibition also bans private citizens from bringing qui tam actions

if the information forming the basis of the action was acquired during the courseof a government hearing, investigation or audit or from the news media. See 31U.S.C. § 3730(e)(4)(A) (1988).

95. 913 F.2d at 20.96. Id.97. See, e.g. United States ex rel. Williams v. NEC Corp., 931 F.2d at 1500,

n. 13.

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The government's third contention was that the 1986 amendmentdid not repeal the comprehensive bar against qui tam suits bygovernment employees as found in the 1943 version of the FalseClaims Act. 9 Instead, the United States argued that the failure ofthe 1986 amendment to explicitly include government employees asproper relators was an indication that Congress had no intention ofchanging the law as it applied to them.Y

As a consequence of Congress' failure to state explicitly itsintentions with regard to government employees, the courts have hadto invoke various rules of statutory construction in order to determinethe merits of the government's position. In general, courts are reticentto infer congressional intent where the language of the statute appearsclear and plain on its face:

"Where the language of a statute is a clear expression of congres-sional intent [a court] need not resort to legislative history." Thesearch for legislative intent begins and ends with the language of astatute unless: (a) the language of the statute is ambiguous; (b)legislative history shows that Congress clearly expressed an intentcontrary to the plain language of the statute; or (c) the apparentclarity of language leads to an absurd result when applied.1°°

The comprehensive bar provision in Section 3730(b)(4) of the1943 version of the Act was replaced by Section 3730(e), which, inaddition to barring suits based on public disclosure in certain pro-ceedings, listed three other types of suits which would invoke thejurisdictional bar: (1) suits between members of the military; (2) suitsagainst members of Congress, the judiciary, or senior executiveofficials if the action was based on evidence or information knownto the government when the action was brought; and (3) suits basedon allegations that were the subject of a civil suit in which the UnitedStates was already a party. I0' As one court observed, Congress had

98. Id. at 1501.99. See supra note 22 and accompanying text.

100. United States ex rel. Stinson, Lyons v. Blue Cross, 755 F. Supp. 1040,1047 (S.D. Ga. 1990) (citations omitted).

101. In pertinent part, the Act provides:(e) Certain Actions Barred. (1) No court shall have jurisdiction over

an action brought by a former or present member of the armed forcesunder subsection (b) of this section against a member of the armed forcesarising out of such person's service in the armed forces.

(2)(A) No court shall have jurisdiction over an action brought undersubsection (b) against a Member of Congress, a member of the judiciary,or a senior executive branch official if the action is based on evidence orinformation known to the Government when the action was brought.

(B) For purposes of this paragraph, "senior executive branch official"means any officer or employee listed in section 210(f) of the Ethics inGovernment Act of 1978 (5 U.S.C. App.).

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a choice in how it structured the statute: it could have chosen tomake eligible as qui tam relators only certain defined groups ofpersons and exclude all others, or it could have chosen to includeall persons as eligible qui tam relators with specific exceptions.10 2

Because Congress chose the latter scheme, courts have reasonablyinferred that government employees are included in the generaluniverse of eligible qui tam relators unless they fall into one of thefour specifically excluded groups noted above. 103 Moreover, thisinference is consistent with the rule of statutory construction thatthe enumeration of specific exclusions from the operation of a statuteis an indication that the statute should apply to all cases not specif-ically enumerated. 104

In response to the Department of Justice's contention that Con-gress did not realize that by changing the statutory language it mightallow qui tam suits by government employees, 05 the courts notedthat there was no extraordinary showing of contrary intention thatwould justify an alteration of the plain meaning of the statutorylanguage.'06 To infer such contrary intent would be to violate therule of statutory construction that states Congress is assumed to actwith deliberation rather than by inadvertence. l° However, Congressdid not contemplate the issue of whether government employeescould sue as qui tam relators. In fact, one of the drafters of the1986 amendment indicated that it was convenient not to have theissue surface in Congress because of the complexities of "trying todifferentiate the types of situations where it may be appropriate toallow a government employee to bring a false-claims suit and thosesituations where they may be accused of simply cashing in on theirgovernment-assigned task-which was never intended by law."' 18 Theprimary concern of the drafters of the 1986 amendment was to

(3) In no event may a person bring an action under subsection (b)which is based upon allegations or transactions which are the subject of acivil suit or an administrative civil money penalty proceeding in which theGovernment is already a party.

31 U.S.C. § 3730(e) (1988).102. Erickson v. American Institute of Biological Sciences, 716 F. Supp. 908,

912 (E.D. Va. 1989).103. See id. at 913.104. See Matter of Cash Currency Exchange, Inc., 762 F.2d 542, 552 (7th

Cir. 1985), cert. denied sub nom., 474 U.S. 904 (1985).105. Erickson v. American institute of Biological Sciences, 716 F. Supp. at

918, n.23.106. See e.g., United States ex rel. Stinson, Lyons v. Blue Cross, 755 F. Supp.

1040, 1048 (S.D. Ga. 1990).107. See supra note 105.108. Statement by John Phillips, a Los Angeles plaintiff's attorney who

specializes in False Claims Act litigation. David Lapp, Blowing the Whistle, Loudly;What Can a Civil Servant Do About Fraud on the Government When It Won'tListen? The Answer, the Justice Department Seems to Say, is Nothing, THE RE-CORDER, May 2, 1991, at 4.

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overcome the restrictive effect of the 1943 amendment and enhancethe ability of persons to bring fraud to light. °9 As Justice Scaliaobserved while interpreting a different statute, "Congress often acts'only one step at a time,' to eliminate one abuse that has becomethe focus of its attention but not all allied abuses . . . ." '0 Conse-quently, it is quite plausible that the current Act as literally applieddoes not correspond to what Congress would have intended if it hadconsidered all allied abuses. Needless to say, Congress is the properforum for fleshing out what Congress intended. The remainder ofthis Article addresses some of the policy concerns underlying theability of government employees to become relators and proposesrecommendations for changes in the statute.

IV. POLICY CONCERNS

Investigators and auditors like ... Stanford-assigned Navy auditorPaul Biddle have a conflict of interest and an unacceptable incentiveto self-deal if they are allowed to participate in substantial recoveriessimply for doing their job. Their duty to ferret out fraudulentclaims competes with their financial incentive to sue on behalf ofthe government and share up to 30 percent of the recovery. Wethink it's simply wrong for government's own watchdogs, whetherGAO auditors, Justice Department lawyers or FBI agents, to useinformation they learned on the job for their own financial benefitrather than allowing the government to use the information as thebasis of its own prosecution."'

There are several legitimate policy concerns that present obstaclesto the ability of government employees to sue as qui tam relatorsunder the False Claims Act. First, critics argue that to permitgovernment employees to sue under the Act using information theyacquired during the course of their jobs would be to reward themtwice for their investigative efforts." 2 Second, recovery under the Actwould encourage such employees to focus their investigative effortsonly on those jobs that have a potential of a high financial pay-off."3 A corollary of this is that the employee may put off investi-

109. S. REP. No. 345, supra note 14, at 12.110. Crandon v. United States, 494 U.S. 152, 175 (1990).111. Senator Charles Grassley and Representative Howard Berman, Finding a

Middle Ground in Qui Tam Suits, WASH. POST, February 2, 1992, at C6.112. "Why should Mr. Biddle, who is already being paid to audit Stanford's

books and who has been able to obtain information, question university officialsand rely on public support services only because he is working for the federalgovernment, be able to claim this additional bonanza?" Qui Tam Scam, WASH.POST, Dec. 26, 1991, at A22. See also United States ex rel. Williams v. NEC Corp,931 F.2d 1493, 1503 (11th Cir. 1991).

113. See Erickson v. American Inst. of Biological Sciences, 716 F. Supp. 908,916, n.18 (E.D. Va. 1989).

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gative efforts where fraud is suspected to allow the "pay-off" to getlarge enough to sue under the Act:

Indeed, a blanket ruling allowing government employees to bringqui tam suits could prove catastrophic, potentially paralyzing in-vestigative bodies like the offices of the inspectors general and theJustice Department. In their official capacity, investigators mightpursue cases half-heartedly, so that as private plaintiffs-entitled toa percentage of the recovery-they might later, enrich themselvesby bringing the same cases. '4

A second corollary is that a conflict of interest arises if agovernment employee is allowed to file a qui tam action and remainon the case to continue investigative efforts. For example, Represen-tative Don Edwards of California and Senator Jeff Bingaman ofNew Mexico wrote letters to the Bush Administration urging theremoval of Paul Biddle from his post at Stanford because he wasviolating conflict of interest laws" 5 by continuing to monitor theuniversity while pursuing a potentially lucrative lawsuit against theinstitution."16 An editor at the Washington Post stated that "[tiheconflict of interest here is as clear as it would be if judges wereempowered to set fines and keep a percentage of everything theycollect." 7

A third concern in allowing government employees to sue underthe statute is that mistrust could be created among governmentemployees who may see their peers as overzealous and self-seekingin their efforts to become relators in qui tam suits. A fourth concernis that unscrupulous government investigators might steal fraud claimsthat private parties bring to the government's attention." 8 Theseparticular concerns are not new. While urging fellow lawmakers toadopt the conference report regarding the 1943 amendment to theAct, Representative Clarence Hancock stated:

The temptation and the opportunity is tremendous under the [orig-inal] law for renegotiators, contracting officers of the various pur-chasing agencies of the Government, and agents for collectors of

114. Lapp, supra note 108, at 4.115. Federal law provides that no government employee can serve in a post

in which he has a conflict of interest. As the Office of Naval Research's residentAdministrative Contracting Officer (ACO), Biddle was responsible for negotiatingand establishing the indirect cost rates at Stanford. See generally Financial Respon-sibility at Universities, Part 2, supra note 2, at 66. As indicated earlier, a centralallegation of Biddle was that the previously agreed upon indirect rates as evidencedby the memoranda of understanding entered into by Stanford and prior ACOs wereimproper.

116. Transfer of Stanford Case Auditor Urged, L. A. TIMES, Dec. 20, 1991,at A40.

117. Qui Tam Scam, WASH. POST, Dec. 26, 1991, at A22.118. W. John Moore, Windfalls for Whistle-Blowers, 17 NAT'L J. 48 (1992).

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internal revenue to take advantage of the information they discoverin the course of the business to enrich themselves by instigatinginformer's suits. That is a temptation we wish to remove." 9

In fact, Congress also was concerned that government employeeswould try to circumvent the prohibition against their serving asrelators by providing information to their friends. 2'

Despite the legitimacy of these policy concerns, the point muststill be made that fraud against the government is pervasive. 2 ' Thegovernment's ability to detect fraud is handicapped without thecooperation of those who are either close observers or otherwiseinvolved in the fraudulent activity. 122 In this respect, governmentemployees may be in the best position to ascertain and exposefraudulent activity. However, the United States Merit Systems Pro-tection Board conducted a survey in 1983 that found sixty-ninepercent of government employees who believed they had direct knowl-edge of illegalities failed to report the information. 2

1

Those employees who chose not to report fraud were then askedwhy they failed to come forward. The most frequently cited reasongiven (53 percent) was the belief that nothing would be done tocorrect the activity even if reported. Fear of reprisal was the secondmost cited reason (37 percent) for nonreporting.'2

The validity of these fears is found in two cases involvinggovernment employees. In United States ex rel. Hagood v. Sonoma, 125

James Hagood, an Army Corps of Engineers attorney, initiated aqui tam action after he was removed from his position and transferredto Alaska. This removal and transfer was prompted by his refusalto approve a contract between the Corps and the Sonoma CountyWater Agency in California "on the basis that it violated a varietyof federal fiscal and environmental regulations and statutes." 126 Thesuspect contract was subsequently approved by his superiors. 27 InUnited States ex rel Williams v. NEC Corp.,128 Arthur Williams, a

119. 89 CoNG. Rnc. 10,849 (Dec. 17, 1943).120. "We feel that by enacting this . . . legislation . . . there will not be this

ever-present invitation ... for dishonest and unscrupulous investigators to turn overinformation to their friends or co-conspirators for the purpose of bringing suit .... .89 Co NG. Rnc. 10,846 (1943).

121. The Department of Justice has estimated fraud as draining one to tenpercent of the entire federal budget or approximately $10 to $100 billion annually.S. REp. No. 345, supra note 14, reprinted in 1986 U.S.C.A.N.N. 5266, 5268.

122. Id. at 5269.123. Id.124. Id. at 5269-70.125. 929 F.2d 1416 (9th Cir. 1991).126. Herbert Hafif & Phillip E. Benson, "Qui Tam": No Scam, WASH. POST,

Jan. 28, 1992, at A21.127. Id.128. 931 F.2d 1493 (11th Cir. 1991).

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civilian Air Force attorney, detected a bid-rigging scheme among aconsortium of Japanese contractors and reported it to his superiors:"For his efforts, Williams was placed under investigation. In disgust,he retired to Florida and filed a qui tam action.' 1 29 The UnitedStates won a $34 million settlement against the Nippon ElectricCompany, but Williams did not get a cent. 130

These cases are not the only examples. In the case of Paul Biddle,Representative John Dingell remarked that "[tihe record shows hewas treated rather shamefully by Stanford and by his superiors."''He was put on probation for more than eighteen months, receivedno merit increases or bonuses, suffered "downgraded personnel re-views and numerous other attempts by Stanford-through his super-iors-to gag him, destroy his credibility and remove him permanentlyfrom Stanford.' '3 2 Leon Weinstein, a Miami investigator in theInspector General's office of the United States Department of Healthand Human Services, initiated more than 50 qui tam actions againsthealth care providers, 3 3 alleging false billing and other illegal prac-tices. 34 Prior to filing these actions, Weinstein, to no avail, hadurged Inspector General Richard Kusserow to prosecute a number ofthe providers.' Weinstein retired in frustration and brought theseactions. 3 6 While challenging Weinstein's right to sue under the stat-ute, the Department of Justice joined the actions and has alreadysettled three of them recovering approximately $600,000. 17 As aconsequence of challenges by the Department of Justice, no govern-ment employees, to date, who have filed qui tam actions have receivedany money for their investigative efforts.13

1

The government contends that the removal of the comprehensivebar would encourage an explosion of qui tam actions by governmentemployees.3 9 However, as has been noted by attorneys for PaulBiddle, "there has been no great invasion of the courts by governmentemployees seeking to get rich from the statute. Nor has there been

129. Hafif & Benson, supra note 126, at A21.130. Louis Freedberg, Payoffs Challenged, Blowing a Whistle on Whistle-

Blowers, S. F. CHRON., Feb. 1, 1992, at Al [hereinafter Payoffs Challenged].131. Kelly, supra note 1, at 6D; see also Financial Responsibility at Univer-

sities, supra note 57, at 3.132. Hafif & Brown, supra note 126, at A21.133. See, e.g., United States v. CAC-Ramsay, Inc., 744 F. Supp 1158 (S.D.

Fla. 1990), aff'd, 963 F.2d 384 (1lth Cir. 1992).134. David Lapp, Justice Department Covers Ears to Blowing Whistles, CONN.

L. TRIB., Apr. 15, 1991, at 22.135. Id.136. Id.137. Id.138. Payoffs Challenged, supra note 130, at Al.139. See Howard Mintz, Qui Tam On Campus; DOJ Policy Stiffs Stanford

Whistleblower, LEGAL TimEs, Jan. 20, 1992, at 2.

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any evidence of government employees' sandbagging informationobtained during performance of their governmental duties in hopesof filing qui tam suits before the government acts."14

In general, government employees are no different than privatesector employees who blow the whistle.' 14 As the cases' 42 and thestatistics of the Merit Systems Protection Board 143 bear out, govern-ment employees can be subject to stone-walling, reprimanding, andfiring by superiors. For example, Pentagon whistleblower Ernie Fitz-gerald was fired at the request of Richard Nixon after Fitzgeraldtestified before Congress in 1969 about the added costs on the C-5transport plane. It took Fitzgerald fourteen years and $1 million inlegal fees to obtain a position similar to his old job.' 4

[Wihistleblowers don't exist exclusively in the private sector. Rank-and-file government employees who are not investigators or auditorsmay . . . become whistleblowers if, because of bureaucratic corrup-tion, malaise or politics, their superiors decline to pursue meritoriousfraud cases. In these cases, the government and taxpayers can onlybenefit from the filing of a False Claims action that exposes fraudthat would otherwise have gone undiscovered or unprosecuted. 45

An additional reason for not restricting government employeesunder the Act is that many allegations of fraud are currently goingunaddressed because of resource and budgetary constraints on thepart of the government. Allegations that could possibly develop intosignificant cases are frequently left unaddressed because of a judg-ment by federal auditors, investigators, and attorneys that devotingscarce resources to a questionable case may not be efficient.1' 6 Gov-ernment employees who assist or initiate the investigations on theseunaddressed cases should be allowed to pursue them through a privatequi tam action. It has already been established that "assistance fromthe private citizenry can make a significant impact on bolstering thegovernment's fraud enforcement efforts."'' 47 This is a major reason

140. Hafif & Benson, supra note 126, at A21.141. See Martin H. Malin, Protecting the Whistleblower from Retaliatory

Discharge, 16 U. MICH. J.L. REF. 277 (1982). See also Jack Stieber & MichaelMurray, Protection Against Unjust Discharge: The Need for a Federal Statute, 16U. MICH. J.L. REF. 319 (1982).

142. See supra notes 125-38 and accompanying text.143. See supra note 124 and accompanying text. See also, Bruce D. Fong,

Whistleblower Protection and the Office of Special Counsel: The Development ofReprisal Law in the 1980s, 40 AMER. U.L. REV. 1015 (1991).

144. Payoffs Challenged, supra note 130, at Al.145. Grassley & Berman, supra note 111, at C6.146. See S. REP. No. 345, supra note 14, at 7, reprinted in 1986 U.S.C.C.A.N.

at 5272.147. Id. at 8.

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why the qui tam provisions were revitalized in 1986.148 It has beenargued that to allow government employees to recover under the Actwould appeal to their sense of greed. 49 Even if this premise isaccepted, one need only consider the alternative if government em-ployees are not allowed to sue-the continuation of unchecked,rampant fraud. Indeed, personal enrichment may be the primarymotivation behind an employee's desire to bring a qui tam action;however, the government is enriched as well by recovering up to 100percent of misappropriated funds plus penalties. Further, those in-volved in fraudulent schemes may be effectively deterred if they knewthat they could not rely on the ineptitude or malaise of governmentemployees in ferreting out illegal activity. 50 As a consequence of notplacing a jurisdictional bar against government employees' ability tosue under the False Claims Act, all are winners-the governmentrecoups money it would not have otherwise, and government em-ployees are compensated for taking risks and "going the distance"in their investigative efforts.

V. RECOMMENDATIONS

The False Claims Act should be revised to clarify the eligibilitystatus of government employees to sue as qui tam plaintiffs. Congressshould also recognize the interests of the government in assuring thatthe qui tam provisions of the False Claims Act not be reduced to amere vehicle for early retirement by government employees. In gen-eral, the statute should be revised to limit, if not prevent, avaricefrom being the primary motivator for government employees doingtheir jobs. In particular, the statute should address the situationwhere government employees are either concentrating their investi-gative efforts or impeding their own or others' investigative effortsin order to subsequently file cases that offer the potential of a highfinancial pay-off. In addition, the statute should address the em-ployment consequences of the government employee who brings thisprivate enforcement action but who still has a position overseeingthe operations of the alleged wrongdoer. Accordingly, it is importantto establish procedural safeguards to assure that the potentiallyconflicting interests of the government and the government employeeare both heard.

148. See Bland, Why 'Qui Tam' is Necessary, NAT'L L. J., Nov. 4, 1991, at13.

149. See supra note 119 and accompanying text.150. The social benefits of a private enforcement suit can outweigh its private

benefits to the relator. See John C. Coffee, Jr., Understanding the Plaintiff'sAttorney: The Implications of Economic Theory for Private Enforcement of LawThrough Class and Derivative Actions, 86 COLUM. L. Rav. 669, 672, n.6 (1986).

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When government employees become aware of illegalities com-mitted by contractors, they should provide a written report of thesefindings to their immediate supervisor. The report should include astandard cover sheet, which would require that the superior, or adesignee, sign and date the sheet as evidence of the time of theemployee's submission. Also noted on this cover sheet would be thedate by which time the contracting agency would have to respond tothe facts alleged in the report. A period of one year to give thecontracting agency an opportunity to determine its course of actionseems reasonable in this regard. Once the employee's superior hasreceived the report, the superior would be required to notify thehead of the contracting agency, who would in turn consult with thecognizant' 5' Office of Inspector General or the Attorney General ifno Office of the Inspector General exists for that agency. 5 2

If the contracting agency intends to investigate further, it shoulddocument its intended course of action and forward a copy of thisdetermination to the employee.' The employee could then chooseto initiate a qui tam cause of action if the employee believes thatthe investigative efforts undertaken by the contracting agency areinsufficient in deterring the illegal activity or represents an unduecompromise of the government's recovery potential in relation to theharm caused it by the contractor's breach. 5 4 Further, if the agency,in writing, declines to pursue the matter or simply does not respondto the employee-submitted report within the one-year time frame,the employee should be allowed to sue. In either case, regardless ofthe agency's disposition on the employee-submitted report, the Actshould require the employee who does choose to bring the qui tamcause of action to put in writing the reasons why the employeebelieves that the contracting agency's determined course of action isinsufficient to protect the government's interest. When the govern-ment employee initiates the qui tam action by filing a claim in court,the filed documents should include not only the allegations formingthe basis of the cause of action, but should also include the signedand dated cover sheet, the correspondence, if any, from the con-

151. Cognizance is determined on the basis of the contractor's location. See,e.g., 48 C.F.R. § 442.102(b) (1992).

152. This procedure is similar to that already in place for the Department ofHealth and Human Services (see, e.g., 48 C.F.R. §§ 303.104-11 (1992)), and theDepartment of Agriculture (see, e.g., 48 C.F.R. §§ 403.203-.204; 48 C.F.R. §442.102 (1992)). See also, 48 C.F.R. § 501.602-3 (1992); 48 C.F.R. § 503.303 (1992)(regarding the General Services Administration).

153. Of course, if the agency needs an extension of time, this should also becommunicated in writing to the employee.

154. The employee should also be allowed to initiate a qui tam action if theagency has sought an extension based on the insufficiency of resources to adequatelyaddress the allegations in the employee-submitted report. See infra note 158. Thiswould prevent an agency from stonewalling the employee.

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tracting agency regarding its disposition of the employee-submittedreport, and the employee's reasons for pursuing this cause of action.

In reviewing the filed documents, the government needs to havea procedure whereby it can determine (1) whether there is a govern-ment interest sufficiently compelling to override the interests of thegovernment employee in pursuing the qui tam cause of action; and(2) whether the cause of action is parasitic.

It is only proper in the first regard that the government have theopportunity to challenge the government employee's right to sue ifnational security or some other compelling government interest isthreatened by the bringing of the qui tam action.'55 Even so, theprovision in the current Act that requires the qui tam plaintiff'scomplaint to be filed in camera and to remain under seal for at leastsixty days 5 6 should allow the government sufficient time to objectand suppress the employee's right to sue if a compelling governmentinterest is indeed at issue. Congress intended this sixty-day timeperiod to allow the government a sufficient opportunity to fullyevaluate the qui tam suit and "determine both if that suit involvesmatters the government is already investigating and whether it is inthe government's interest to intervene and take over the . . . ac-tion." '157 A court can extend this sixty-day evaluatory period if thegovernment so petitions and shows good cause.5 8 In addition, thequi tam action can be dismissed if the court and the Attorney Generalgive written consent to the dismissal and state their reasons forconsenting.5 9 If a government interest is truly compelling, a court

155. A compelling government interest would be found to bar the cause ofaction if the employee has not fully complied with the procedures as laid out above.Moreover, in determining whether there is an overriding public interest that wouldextinguish the government employee's right to sue, the Department of Justice cantake under advisement any reasons that the contracting agency indicated in itscorrespondence to the employee regarding government interests that would bethreatened if the employee initiated the qui tam cause of action.

156. 31 U.S.C. § 3730(b)(2) (1988). The current version of the Act clarifiesthat the 60-day period does not begin to run until both the complaint and materialevidence are received by the Government. S. REP. No. 345, supra note 14, at 23,reprinted in 1986 U.S.C.C.A.N. at 5288 (emphasis in original).

157. S. REp. No. 345, supra note 14, at 24, reprinted in 1986 U.S.C.C.A.N.at 5288.

158. 31 U.S.C. § 3730(b)(3) (1988). According to the legislative history, goodcause would not be established by a mere showing that the government wasoverburdened and did not have an opportunity to address the complaint. S. REp.No. 345, supra note 14, at 25, reprinted in 1986 U.S.C.C.A.N. at 5290. However,a pending criminal investigation would often establish good cause but would not beconsidered an automatic bar to lifting the seal from the civil complaint. Id.

159. 31 U.S.C. § 3730(b)(1) (1988). Currently, if the government does notseek dismissal, but merely declines to join in the suit, the qui tam plaintiff is freeto pursue the cause of action alone and at his or her own risk and expense. 31U.S.C. § 3730(d)(2) & (4) (1988).

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would arguably consent to the government's petition for dismissal.If the government is unable to demonstrate a compelling interest

that would suppress the government employee's right to sue, thegovernment should then be afforded an opportunity to discern whetherthe cause of action is parasitic. In this instance, a determinationshould be made as to (1) whether the employee is the original sourceof the information; (2) whether the employee alerted superiors andother appropriate personnel to the alleged illegality prior to bringingsuit; and (3) whether sufficient time was given the government topursue the matter. This analysis should be more perfunctory if thecompleted cover sheet and other agency correspondence regardingthe matter were filed with the court. If an employee waited therequisite one year as evidenced by the signed and dated cover sheet,the government should find that the cause of action is not parasitic.However, this finding is not automatic. If the employee is not theoriginal source of the information, the Department of Justice shouldmake additional inquiries to determine how the employee came uponthe information and whether the government had an appropriatetime in which to respond to the allegations before deciding whetherthe suit is parasitic. 160 Moreover, a distinction should be made be-tween those employees whose job it is to investigate fraud and otherillegalities against the government and those employees who havenon-investigative positions. The potential for abuse in the use oftheir positions for personal enrichment is greatest among those whosejob it is to ferret out illegal activity. However, this is not to say thatthere should be a blanket prohibition against those employees whosejob encompasses investigative functions. These individuals are thevery ones who have the greatest opportunity to detect and reportfraud and yet run the risk that superiors will not act on their claimsbecause of scarce resources, ineptitude, or general malaise. Instead,these claims should be scrutinized more closely by the system forany evidence that could point to a reasonable conclusion that suchemployees have abused the privileges afforded their position in orderto personally profit.

By utilizing the above procedures, government employees wouldbenefit because they would submit the claim once to their superiorwithout any concern as to whether the appropriate personnel wasalerted to the alleged abuse. Further, if no action is taken on thematter or no response is given the employee within a certain time bythe agency, the employee should be free to pursue the matter privatelyvia a qui tam action. Since the one-year time limit within which theagency has to act or respond to the employee presents an objectivestandard, the employee should not have to second-guess whether heor she has waited long enough before pursuing the matter privately.

160. Moreover, inquiry should be made to insure that the employee is notstealing fraud claims that private parties bring to the government's attention.

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Consequently, it would be efficient if the contracting agency consid-ered all allegations of illegality by government employees as poten-tially becoming the subject of a qui tam action. Therefore, duringthis one-year and sixty day time frame for the agency and theDepartment of Justice, respectively, these organizations should makeassessments to determine whether any compelling government interestexists that conflicts with the employee's right to sue, and if not,whether the claim, if the subject of a qui tam action, would beparasitic. It would appear that one year should provide a realistictime frame in which the agency would have time to assess the situationand determine a course of action or inaction in the matter. In thesame vein, it appears realistic for the Department of Justice to beable to determine its course of action or inaction in relation to itsresources within the sixty days as provided currently in the Act.

If a government employee, who is an original source of theinformation, is successful in a qui tam action in which the governmentdeclines to intervene, a recovery based on a sliding scale indicativeof the level of effort the plaintiff put into pursuing the cause ofaction would be appropriate. In no event should this award exceedten percent. If the government does choose to intervene, recoveryshould be reduced to a maximum of five percent.'16 If a governmentemployee is not an original source 62and the government declines tointervene, a court should award the relator a recovery, again usinga sliding scale, indicative of the extent to which the relator's effortsresulted in an award to the government. In no event should thisaward exceed five percent. If the government chooses to intervene,the maximum recovery should be reduced to two percent.

VI. CONCLUSION

Government employees should have standing as relators in orderto initiate a qui tam action against contractors who commit fraudagainst the United States. Basing the cause of action on informationacquired as a part of the employee's job responsibility should notpreclude the employee from recovery. With its scarce resources, thefederal government is not in a position to effectively curb thepervasive and rampant fraud committed against it. The False Claims

161. Arguably, a government employee should be required to withdraw asrelator once the government chooses to intervene. However, by allowing the employeethe option to remain as a party to the suit, the relator has the opportunity to objectto any proposed settlement amounts that are thought to be too low.

162. A question may be raised as to why the Act should allow a governmentemployee who is not an original source to maintain the qui tam action. Even inthis case the government is benefitted if it would not have pursued the claim in itsown right. Further, by permitting the qui tam action, it prevents the wrongdoerfrom falling through the cracks and thus serves as an effective deterrent againstcontractor fraud.

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Act was enacted, and subsequently strengthened, in order to assistthe government in its policing and enforcement efforts. Privatecitizens, compelled by greed or the need to do what is right, havemanaged to put money back into the United States Treasury. 63

Government employees, as members of the public citizenry, may bein the best position to detect and expose fraudulent activity. Theirproximity, which allows them to closely observe illegal activity, andtheir position, which allows them to audit the organization and directquestions to various levels of personnel, provide them with a uniqueopportunity for detecting fraud. Akin to the plight suffered by manyprivate sector employees who blow the whistle on their employers,coming forward with information that fraud has been committedagainst the government involves risk to the government employee.Coming forward with such information can underscore ineptitude,malaise, or corruption within the federal agency. In terms of adverserisk scenarios, coming forward can result in reprisal against theemployee as a worst case, or in general frustration and hopelessnessas a better case. 64 In either scenario, government interests are notfurthered and are, in fact, hindered. Allowing government employeesto maintain qui tam actions would compensate them for these risksand would provide a sense of hope and vindication that comingforward was, indeed, worth it. Placing the burden on agencies totake action or risk a qui tam suit will create the best incentive toferret out fraud.

163. Assisted by private citizens, the United States Treasury recovered $260million in fiscal 1990, up from $83 million in fiscal 1987. Moore, supra note 49, at48.

164. See supra note 123 and accompanying text.

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Documents

The Pebble in the Shoe: Making the Case for the Government